Our point of view

Nordic Market Newsletter 2/2014

10 April 2014


Three new EU directives aimed at simplifying and making public procurement more efficient

On 11 February 2014, three directives on public procurement were adopted by the European Council. The directives aim to rationalise the allocation of public resources by making it easier for small and medium-sized businesses to participate in public procurement procedures.

The rules are also aimed at enabling contracting authorities to take social, environmental and labour aspects into consideration when awarding contracts as well as strengthening the rule of law by clarifying basic concepts and principles and codifying the case law of the European Court of Justice.

The directives will be published in the Official Journal of the European Union in March and will enter into force 20 days later. After publication, the Member States will have 24 months to transpose the directives into national legislation.

Joakim Lavér, Partner, Stockholm
Emma Munde, Associate, Stockholm

European Parliament adopts the proposed directive on criminal sanctions for market abuse (MAD II)

The European Commission proposed a new directive on criminal sanctions for insider dealing and market manipulation (MAD II) and a regulation on insider dealing and market manipulation (MAR) in October 2011. The new legislation aims to solve certain problems identified with the application of the current Market Abuse Directive 2003/6/EC and to ensure market integrity and investor protection. The proposal for MAD II was approved by the European Parliament on 4 February 2014.

At present there are substantial differences in how member states regulate market abuse, and for instance, market manipulation is not a criminal offence in some member states, such as Austria, Bulgaria and Slovakia. The proposed new directive establishes EU-wide minimum rules for criminal sanctions for insider dealing and market manipulation.

MAD II defines the following offences: i) insider dealing, ii) recommending or inducing another person to engage in insider dealing, iii) unlawful disclosure of inside information and iv) market manipulation, which MAD II requires to be regarded as criminal offences at least when the offence is serious and committed intentionally. MAD II requires member states to enact maximum sanction levels of at least four years’ imprisonment for market manipulation, insider dealing and recommending or inducing another person to engage in insider dealing, and at least two years for unlawful disclosure of inside information. However, member states may impose more stringent measures. Further, MAD II ensures that legal persons can be held responsible. It is to be noted that under MAD II the previous regime’s application scope is extended (to include financial instruments traded also on MTF’s, OTF’s and OTC) and the manipulation of benchmarks, including LIBOR and EURIBOR, is prohibited and must be made a criminal offence.

In Finland it is anticipated that the Criminal Code would need to be amended, since among other things the manipulation of interest rates and benchmarks is not included in the current legislation. However, the Finnish Government and the Committees of the Parliament have previously indicated that the amendments would more than likely not be major and for the most part the current legislation already covers the obligations set by MAD II.

Also in Sweden the Market Abuse Act would need to be amended as manipulation of benchmarks is not a criminal offence under the current act. The current Swedish legislation already covers a large part of the obligations set out in MAD II, even though a number of changes can be anticipated. MAD II prohibits termination or modification of a placed order in the financial instruments to which the insider information relates if the order was placed before the person concerned possessed the insider information. This has previously not been the case in Sweden.

The legislative impact of MAD II to Danish law is unknown at this time. Because of a reservation in relation to EU legislation concerning internal affairs, Denmark will not take part in adopting MAD II and is therefore not subject to its application. The described actions above, except for the cancellation or amendment of an order concerning a financial instrument, are already offences by Danish law and severely sanctioned. However, MAD II is currently under consideration by the Danish Ministry of Justice for possible adjustments to Danish legislation.

MAD II is expected to be finalised and published in the Official Journal of the European Union in June 2014. Member states will have two years from the date of publication to implement MAD II in national law.

Klaus Ilmonen, Partner, Helsinki
Björn Kristiansson, Partner, Stockholm


Court Cases

CEO’s liability for selling partners’ shares at an undervalue

The Swedish Court of Appeal (case T 1317-13) considered whether a CEO of a holding company could be liable for selling two investors’ shares at a much lower price than he sold the shares of other investors in the company. The CEO was engaged to sell all the investors’ shares. The price was decided primarily after discussions between the investors and the CEO, who was also a shareholder in the company. The CEO had in turn negotiated with the acquiring company, which had paid approximately SEK 166,000 per share to the two claimant investors but over SEK 320,000 per share for the remaining shares.

The Court of Appeal and the District Court agreed that the shareholders’ sale terms did not create a duty of loyalty which could establish a right to damages and that there had been no criminal deception from the CEO's side.

Although the CEO had not explicitly informed the claimants about the other shareholders’ agreement with the acquiring company, the two investors had already signed an agreement saying they were willing to sell their shares for a much lower price than the indicative offer from the acquiring company. The Court of Appeal held that the negotiations with the acquiring company had led to the shares being sold at the price demanded by the claimants. Beyond that, the other shareholders had agreed to a continuing role within the company, whilst the claimants intended to leave the company entirely. This put them in a much weaker negotiating position.

The claimants had not shown that the CEO had violated the terms of his engagement by failing to obtain the same price for the two claimants’ shares as that for the remaining shareholders. Therefore, the CEO was not liable in damages.

We believe that this case turns heavily on its facts, but it will be welcome to sales agents and consultants that the court resisted a finding of a fiduciary duty to go beyond the strict terms an engagement in looking out for the interests of principals.

Björn Kristiansson, Partner, Stockholm

Swedish Court of Appeal reduces the interest in a commercial loan agreement

Under Swedish contract law, a party may seek to set aside or vary the terms of an agreement where it can be shown to be unconscionable, having regard to prevailing or later circumstances. This provision is seldom used in business-to-business dealings since it is principally designed to protect parties who enter agreements under duress or with an inferior bargaining position, for instance parties dealing as consumers. Swedish contract law can also invalidate a contract where person exploits the distressed circumstances, lack of mental capacity, irresponsibility, or dependence of another, in order to attain benefits that are manifestly disproportionate to the consideration paid or promised (commonly referred to as usury).

The Swedish Court of Appeal (Case no T 604-13) recently found an annual interest rate of 54% in loan agreements between a business owner and a financing company to be unconscionable and reduced the interest rate from 54% to 25% (through contract variation rather than by applying provisions concerning usury). The debtor had over a long period entered into several loan arrangements. It was apparent that he was unable to repay the capital amounts and could only cover a fraction of the interest. The court found that it was obvious that the debtor’s financial situation was precarious and deteriorated further over time, and that the debtor thus had an inferior bargaining position in relation to the financing company which would warrant a variation of the interest terms. Low credit rating and the risks associated therewith, a short duration and a financing company (as opposed to a bank) generally motivate a higher interest rate than otherwise. However, a low credit rating of the debtor also enables the financing company to use the debtor’s strained financial position to extract a higher price. Further, since the duration of the loans had in practice been extended, it was more difficult for the financing company to argue that the loans were of short duration and thereby merited a higher interest rate.

The judgment may be a wake-up call for certain lenders as to the need to assess a debtor’s financial situation more closely in order to avoid this type of claim. It is apparent that not only can the provisions concerning usury be applied, but also the provisions concerning unconscionable contract terms generally. What is more, if a short-term loan is not repaid when due and in practice extended, a lender may face the risk that the loan will be seen to be long-term (which makes it more difficult to motivate a higher interest rate).

Viggo Bekker Ståhl, Senior Associate, Stockholm
Emma Munde, Associate, Stockholm

Incorrect calculation of interest rate does not imply that an award shall be annulled

An arbitral tribunal ordered a party to pay a fine and interest to the counterparty. The award was challenged on the grounds that the arbitral tribunal had miscalculated the interest rate due to an incorrect interpretation of the agreement.

The Court of Appeal (case T 2635-13) concluded that an interpretation of an agreement – even if the interpretation is incorrect – is an issue concerning the merits of the case and does not constitute grounds for challenge. The court thus confirmed the principle that an award cannot be annulled merely due to a material error such as an incorrect interpretation of the disputed agreement.

Emma Munde, Associate, Stockholm

Goods and services in a procurement “of the same kind”

According to the Swedish Public Procurement Act, all procurements ‘of the same kind’ must be taken into account when calculating the value of a contract and assessing whether a direct award may be applied.

A Swedish university that planned to procure certain goods and related services divided the procurement into two separate contracts and then awarded the contracts directly to two tenderers. The aggregate value of the contracts exceeded the limit when a direct award is allowed – although each did not individually. Hence, if the procurement had not been divided, the direct awards would not have been allowed.

The court (Kammarrätten in Jönköping, 2014-02-04, case no 2510-13) found that the goods and the services were to be provided by the same supplier and that there was a natural connection between the goods and the services e.g. the time of delivery. Accordingly, the court held that the two contracts were essentially ‘of the same kind’ and that separating the two as direct awards was therefore not permitted.

This case is a reminder to procuring bodies that they must consider whether apparently separate procurement processes should in fact be consolidated into a single process and that processes cannot be artificially separated to avoid certain thresholds.

Joakim Lavér, Partner, Stockholm
Emma Munde, Associate, Stockholm


New Legislation on money laundering

On 10 January 2014, the Swedish government presented a proposal aimed at more effective criminalisation of money laundering. The proposal includes the adoption of a new act specifically governing money laundering sanctions and confiscation and forfeiture of assets.

It will be sufficient for a money laundering conviction that the prosecutor is able to prove that a financial gain originates from criminal activity (instead of specifying which criminal act made the financial gain possible). Further, the definition of ‘money laundering’ will be widened to include money which originates from a person’s own criminal activity and money which originates from businesses used for money laundering purposes.

The new act is proposed to enter into force on 1 July 2014.

Although Sweden has a reputation for transparent business practices and little corruption, there has been concern that this may be undeserved and due in part to a failure to crack down on money laundering. Although this may be an increased burden for certain businesses in the finance and legal industries, it should help keep more unsavoury business activities out of the Nordics.

Caroline Wassdahl, Senior Associate, Stockholm
Emma Munde, Associate, Stockholm

The EU Directive on Capital Requirements increase the requirements on corporate control

The EU Directive on Capital Requirements (CRD4) will enter into force on 1 July 2014. The directive limits the number of directorships which one person may hold in a ‘systemically important’ financial institution. The Swedish Financial Supervisory Authority has been given the authority to designate financial institutions as ‘systemically important’, to enforce the directive and to grant exceptions to the directive.

A director of a systemically important financial institution will only be allowed to hold three other directorships. If the person is a CEO, he or she may have up to two other directorships. If the person is CEO and holds a directorship in the same institution, those two positions are counted as one single position.
This change may coincidentally serve to open up many directorships and gives companies a good opportunity to reconsider the composition of their boards.

Emma Munde, Associate, Stockholm

The Swedish Government proposes a simplification of the rules concerning limited companies

The Swedish Government has presented a proposal to simplify the rules applicable for limited companies. It will be possible for Swedish Companies to be incorporated by legal and natural persons without satisfying current residency tests. There is also a relaxation in residency requirements on directors of companies and clearer provisions to enable the Swedish Companies Registry to grant exceptions.

Moreover, the rules governing reductions in a company’s share capital will be somewhat relaxed.

Although these steps are welcome, particularly for non-EEA owners and managers to Swedish companies, it is unfortunate that the Government has not taken the opportunity to clarify and review some of the other areas that regularly cause difficulties for companies and lawyers, such as the rules governing loans to associated companies and financial assistance in connection with the acquisition of shares.

Bruce McGinn, Managing Associate, Stockholm
Emma Munde, Associate, Stockholm

Swedish Arbitration Act to be evaluated

The Swedish arbitration system generally has an excellent reputation worldwide as a reliable and independent means of resolving commercial disputes, both between Swedish litigants and as a neutral ground for many international disputes regulated under foreign law.

The Swedish Arbitration Act has been in force for over a decade. In order to maintain the competitiveness of the Swedish system of arbitration, the government assigned former Chief Justice Johan Munck to review the Swedish Arbitration Act to evaluate whether it might be improved and modernised.

One of the aspects under scrutiny will be whether foreign parties should be allowed to plead in a language other than Swedish when challenging an award in the Swedish Court of Appeal. Currently, the parties are free to agree what language will apply in the arbitration proceedings, but where a party appeals a decision to the Swedish Court of Appeal it must do so in Swedish.

Allowing other languages, such as English, in the Court of Appeal may be preferable in some cases (especially where the arbitration proceedings were conducted in that language) but it may not be compatible with the constitutionally protected principle of public access to official records which is to ensure easy access to court rulings for the Swedish public. It may also pose considerable challenges for Court of Appeal judges, particularly if a wider range of languages will be permitted.

Emma Munde, Associate, Stockholm
Bruce McGinn, Managing Associate, Stockholm

Swedish Securities Council

The Swedish Securities Council has made five statements during January and February.

Public take-over bid

Bostadsrätterna Sverige Ekonomisk Förening (BSEF) is the largest shareholder in Sveriges BostadsrättsCentrum AB (SBC).

The second largest shareholder, AB Apriori, made a partial cash offer in August 2013 to the shareholders of SBC to acquire 7% of all shares and votes. Following this offer, BSEF wrote to approximately 1,400 of the shareholders and made a press release recommending that shareholders should not accept the offer. In the event that shareholders would like to sell their shares, on the terms set out in the bid, BSEF offered to “assist with a sale of the shares” to avoid a concentration of shareholdings in SBC that might result in any shareholder owning more than 50%. It was implied that the sale to BSEF or its associates would be quicker and easier than accepting Apriori’s bid. As it turned out, BSEF mainly encouraged interested sellers to sell on the market (at a higher rate than Apriori’s bid) but it also acquired a few very small blocks of shares through a wholly owned subsidiary.

Apriori’s complaint that BSEF had, by its actions, made an improper take-over bid was upheld by the Swedish Securities Council. This ruling indicates the importance of considering how a statement in the context of a takeover bid could be interpreted and again underlines the principles-based nature of the takeover code.

Exemption from mandatory bid obligation

Nordic Capital V, L.P, with affiliates, was exempted from the mandatory bid obligation that would arise for its over-allotment option and its market value stabilisation measures that may be used at a floating of Bufab Holding AB.

Atlas Group AB was exempted from the mandatory bid obligation that would arise if the company should acquire shares in the issue in kind in Swede Resources AB.

Nexttobe AB was exempted from the mandatory bid obligation that would arise if the company subscribes for its part of the shares in the contemplated new issue of shares in Hansa Medical AB.

Interchina Water Treatment Hong Kong Company Limited was exempted from the mandatory bid obligation that would arise if the company, direct and by using its warrants, acquires shares in Josab International AB.

Caroline Wassdahl, Senior Associate, Stockholm
Björn Kristiansson, Partner, Stockholm


Deduction not granted for payments to holders of convertible securities


On 14 February 2014, the Swedish Supreme Administrative Court issued an advance ruling addressing the classification of a convertible security for tax purposes.

The case is interesting because Swedish tax regulation has no explicit classification for convertible securities. For tax purposes, such an instrument is generally either classified as equity or debt, and it cannot normally be divided into different parts or taxed separately (hybrid instruments are generally not recognized by Swedish tax law). The terms interest, dividend, debt and equity are not regulated, and the meanings of the terms have developed through case-law which is neither consistent nor very clear.

The case also shows that the characterisation for civil law purposes is not always decisive and may differ from the accounting treatment.


A company planned to issue convertible securities, with subordinated legal claims, a 20-year maturity and interest at 8.5%. The conditions enabled the issuing company to capitalize the interest and to determine, in its discretion, whether the debt (including capitalized interest) would be repaid in cash or shares.

The company declared that the instrument was to be considered as debt (according to the Swedish Companies Act). But it was to be reported as equity under the applicable accounting principles (IAS 32, special standard for classification of financial instruments). Accordingly, any payments to the convertible-holders were taken up in the balance sheet and not the income statement. The question was whether the company could deduct any payments as interest expenses, i.e. should the loan be treated as debt or equity.

According to the court, the accounting treatment was the “natural” starting point for the tax classification. However, this may not be appropriate, both on material and formal grounds, and classification should be made on a case by case basis.

Because the company could force conversion to shares and did not account for the liability as a debt on its balance sheet, the instrument had characteristics not ordinarily attributed to a loan. Furthermore the court observed that treating the instrument as debt would result in non-deductible profit distributions being deductible as interest expenses. Consequently, the accounting was decisive for the tax treatment in this particular case.


The recently introduced accounting standards (e.g. the K3 standard) will in some cases result in a change to how certain instruments are classified for accounting purposes. Changes in accounting classification may even have tax consequences. It is therefore important to consider how an instrument is classified for accounting purposes.

We work closely with our clients’ accounting departments to ensure that these questions are dealt with in order to mitigate the risk of negative tax consequences.

Carl-Magnus Uggla, Specialist Partner, Stockholm
Christian Carneborn, Associate, Stockholm